New Life Cycle Costing Standard Issued for Oil and Gas Industry
Better planning, estimating, and monitoring of costs throughout an asset’s life is key to better decision-making.
The International Organization of Standardization (ISO) has issued a new ISO 15663 containing requirements and guidance on how to apply life cycle costing methodologies to provide decision support for selection between alternative competing options. The document specifies requirements and gives guidance on the application of costing to create value for the development activities and operations associated with drilling, exploitation, processing, and transport of petroleum, petrochemical, and natural gas resources.
Life cycle costing is an iterative process of planning, estimating, and monitoring costs and revenue differences throughout an asset's life and is used to support the decision-making process by evaluating alternative options and performing trade-off studies.
While the largest benefits are typically achieved in the early life cycle phases, it is equally applicable to all phases and at many levels of detail. Cost management within the petroleum, petrochemical, and natural gas industries will benefit from the adoption of a common and consistent approach to life cycle costing, according to the organization.
The organization added that use of ISO 15663 enables strengthening of the industry cost management for business value creation. The standard also contains unique key economic evaluation measures such as life cycle cost and net present value.
The document is not concerned with decision-making related to the economic performance of individual options or options differentiated by factors other than cost or economic value.
The petroleum, petrochemical, and natural gas industries have historically assessed the financial viability of project options based on minimum capital expenditure and achieving project schedule, while operating expenditures and lost revenue have received less focus in the decision-making process. This method has ignored potentially large cost factors and has in some cases resulted in selecting nonoptimal solutions.
Recognizing this situation, life cycle costing is increasingly being applied by a variety of organizations within the industry. All participants in the process—operators, contractors, and vendors—can have a substantial impact on the life cycle cost, and once all are involved, benefits from the use of the costing evaluation.
The new ISO 15663 can be found here.